By CA Ved Mittal Ved & Associates 205 , Jagdamba Tower 13, commercial complex Delhi-110092 Contact : 011-22456788,42686788 9811011665 [email protected]

    Trust Society Section 8 Company ( Section 8 of New Company Act 2013 ) Special Licenses ( State Trading corporation) .

 ◦ ◦ ◦ ◦ ◦ ◦ ◦ Section 2(15) of income tax Act 1961 defines the expression “charitable purpose” in an inclusive manner to include Relief of the poor Education Medical relief Preservation of Environment(Including Watershed, forests and wildlife) Preservation of monuments or places Preservation of artistic or historic interest Any other object of general public utility

 ◦ ◦ ◦ ◦ ◦ ◦ ◦ The Following Laws or constitutional Articles of Republics of India are relevant to the NPO Article 19(1) ( c ) and 30 of the constitution of India Concurrent List ( List III ) Entry 10 “ Trusts and Trustee” and Entry 28 “ Charities and charitable institutions” Income tax Act 1961 Public Trust Act of Various States and Indian Trust Act 1882.

Society Registration Act 1860.

Section 8 of Indian companies Act 2013 Foreign Contribution Regulation Act 2010

     There is NO ANY CENTRAL ACT’S in relation to the charitable trust’s which cover the whole meanings.

Charitable and Religious Trust Act 1920 is the one of the central act which governs many provisions related to Public Trust’s.

First Law of the trust in India came into force known as Indian Trust Act 1882 but it was basically for Private Trust’s.

In the state of Maharastra,Rajesthan,Gujrat, Madhya Pradesh etc have their own State Act’s.

Section 92 of Code of Civil Procedure 1908 also express the meaning of Public charity.

  The Registration for a Trust , whether in relation to a movable property or an immovable property is optional but always desirable.

◦ ◦ ◦ A Registered Trust Deed has certain advantages which are listed below A registered Trust Deed is an official document which carries support and force of Law It effectuates transmutation of Possession A Conveyance of Trust proper to trustee under a Registered Deed is generally not open to Challenge.

  (i) (ii) (iii) (iv) (v) These trust are registered under the Sub Registrar as per the area of the registered office of the trust.

Requirements: Settler:- Who creates the trust.

Trustee:- Who look after the trust. Minimum 2 Objectives.

Initial Corpus Fund / Trust Property.

Beneficiaries:- Public at Large with any discrimination as Cast, colour & Religion.

       The Following mentioned Papers need to be submitted at the Office of Sub- Registrar Two copy of the Trust deed with duly signed and photo of settler and trustees Address proof of the registered office with NOC Address proof of Settler and Trustees A Pay order of Rs. 1100/= Stamp Duty @ 3% of initial Trust Property value (In Delhi ) Two witness All other procedure as same as you purchased the property and transfer

 ◦ ◦ ◦ ◦ ◦ ◦ ◦ ◦ ◦ ◦ Key points to be remembered: ◦ Name of the Trust.

Name of the Settler.

Name of the Trustees.

Initial Corpus Fund.

Main Objective of the Trust.

Ancillary Objective.

General Body.

Executive Committee.

Quorum.

Operating Bank Account.

Dissolution.

   Societies Registration Act 1860 is a Central Act.

Various State made their on act on the basis of Societies Registration Act 1860. We can say this act is the Foundation of all Societies Registration Act’s.

Minimum 7 Member in State Level and minimum 9 member with 8 different state’s at National Level ( in Delhi ).

         Searching the Name of Proposed Society ( Via Link http://www.delhi.gov.in/wps/wcm/connect/doit_industry/Depar tment+of+Industries/our+Services1/Society+Name+Search ).

Two copy of the Bye-Laws with duly signed by all initial Members. Address proof of the registered office with NOC Address proof of all initial Members A Receipt of Rs 50/= Affidavits by the Presidents/ Secretary.

All the papers has to be notarized.

Submit all the Papers with the office of Sub- Registrar of the District in Delhi.

After duly verification of all the document a certificate of the registration of Society has been issued with True Certify copy of Bye-Law’s of the Society.

 ◦ ◦ ◦ ◦ ◦ ◦ ◦

Key point to be remembered

◦

Name of the Society.

◦

Work Scope within state or Whole of India.

Main Objective.

Ancillary Objective.

General Body.

Executive Committee.

Quorum.

Operating Bank Account.

Dissolution Clause.

     Minimum 2 members in a private and 7 members in public company.

2 director in Private Company & 3 Director in Public Company.

Company may or may not have Share Capital.

Main objective of the company should be promote commerce, art, science, Religion, charity or other useful objectives.

Apply its profit for promoting its objects and prohibit payments of dividends to its member’s.

 (i) Registration Procedure: Availability of name :- in form no INC-1 applies with the ROC as normal name application for companies.

(ii) Application for License :- After approved name we file application for License in form no INC-12 with the following documents.

1. Draft Memorandum of Association as per form INC-13.

2. Draft Article of Association

ii.

Application for License ( continued ): 3. Declaration in form No INC-14 ( Professional Declaration ).

4. Declaration in form No INC-15 ( Directors Declaration ).

5. Estimated income & Expenditure for next 3 years 6. Approval/ concurrence/ NOC of the concerned Authorities 7. Copy of Resolution Passed in General Meeting and Board Meeting.

8. Assets & Liabilities Statements with their values as per applicable Rule.

9. List of Proposed Promoters.

10. List of Proposed Directors.

11. List of key managerial personnel.

Registration Procedure ( contin…..)

(iii) After Receiving License we file following form Form Heading Companies Act 1956 Companies Act 2013 Form – 1 Form – INC-7 Application for incorporation of the company ( other than OPC ) Notice of Situation or change of situation of Registered office Particulars of appointment of Directors Form- 18 Form-32 Form-INC-22 Form- DIR-12

Basic Document Formation Jurisdiction Legislation / Statute Objects Authority For Registration Trust Trust Deed - which contains objects of the trust (bye-law) Society Memorandum of Association Articles of Association with rules & regulations.

Company ( Sec 8 ) Memorandum of Association Articles of Association Very Easy Deputy Registrar / Charity Commissioner Easy Registrar of Societies For Maharashtra Charity Commissioner Little Hard Registrar of Companies Relavent state Trust Act - Bompany Public Trust Act 1950 Societies Registration Act 1860 Indian Companies Act 2013 Social benefits & Charitable Sub- Registrar of Societies Social Benefits & Charitable Registrar of Society/ Office SDM Headquarter.

Nonprofit Activities Registrar of Company Controlling Monopoly Democratic Professional

Differential factors Trust Society Re ammendment or Modificatio n of Objects Required Members Registration Can be done by Trustees but Procedure u/s 92 of code of civil procedure be required Minimum = 2 Maximum = No limit As Trust with the Registrar.

by Members in governing body meeting with Special Resolution Minimum = 7 Maximum = No limit Complicated Legal Procedures Minimum = 2 /3 Maximum = No limit As Society with Society Registrar Both as a society and a trust in some states like Maharastra.

As per Companies Act under Section 8 Stamp Duty As per the Stamp duty Act of relevant State of Trust property Value will be executed in non judicial stamp paper with the registrar No stamp paper required for Memorandum of association, and rules and regulations.

Name Very easy to choose Very easy to choose No Stamp paper required for Memorandum of association and articles of association.

Prior approval required from Registrar of Companies.

Differential factors Trust Society Management Board Trustees Governing Body Board of Directors & Management committee Voting Rights Succession in Management Meetings Membership Transfer Member Admission Dissolution or Take over by State Equal rights to all Trustee Equal Rights to all Members Depand on share Holding By Appointment Board of Trustee Meeting By Nomination Possible Possible By Election By Appointment Annual Meeting As per Law. Governing Body meeting as per the rules of Society.

Shareholder / Directors Meeting By Nomination Transfer as per Companies Act.

Governing Body Control General Body or Board Control through issue of Capital.

Possible As Per Companies Act 2013 Compliance Filling the Suit by outsider Low In the name of Trustee Annual documents to Be filed No Such Requirement Medium In the name of Governing Body Annual Audited Accounts and List of Governing Body High In the name of Company Annual Return and audited Accounts

   The Status of NPO will be AOP (Trust) They all will be get registered in income tax site www.incometaxindiaeffiling.com

as there respective institution status.

But in case of Section 8 company the status of institution will be Company.

  There are various query weather institution will be able to avail the benefit of Basic Exemption Limit.

Answer will be that

Basic Exemption limit. Ie 200000 RS currently.

we can avail the benefit of

 ◦ The ITR – 7 has to be filled under the following circumstances.

139 ( 4A ) :- Return of income of charitable trust and institution.:- the income derived from the property held under trust or other legal obligation wholly for or charitable purposes and income by way of voluntary contribution  Due Date if we claim benefit of section 11 and 12 then it will be 30 th September otherwise 31 st July.

  The Accounts need to be audited by a Chartered Accountant and audit report to be furnished in Section 12 ( A ) ( b ) of income tax act. As Section 12 ( A ) ( b ) which says that “ where the total income of the trust or institution as computed under this act without giving effect to ( the provisions of section 11 and 12 exceed the maximum amount which is not chargeable to income tax in any previous year), the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub section ( 2) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed for duly signed and verified by such accountant and setting forth such particulars as may be prescribed”.

◦ ◦ ◦ 139 ( 4 B ):- Return of income of political Party.

139 ( 4 C ):- Return of income of certain association and institution.ie institution claiming benefits under various section 10 clauses as news agencies research association etc 139 ( 4 D ):- certain institution claiming benefits under section 35 ( 1 ).

    Income derived from property under trust subject to sections 60 to 63 wholly for charitable or religious purposes is exempt to the extent such income is applied on the objects of the trust in India, during the previous year. The trust must apply at least 85% of such income on the objects in such cases balance 15% will deemed to be accumulated for the purpose of charity and exempt.

For example if our income applied is say 90% then only 10% will be accumulated not 15%.

 If the amount applied by the trust is less than 85%, the shortfall in application is not taxable in the following cases — ◦ Income is accumulated up to 5 years and the purpose of accumulation is specified to the AO in Form No. 10 . ◦ ◦ ◦ The income accumulated must be applied for the specified purpose within the period of accumulation as per application in Form 10. Till the accumulated amount is applied, it must be invested as specified in Section 11(5). [2nd proviso to Section 11(3A)] In the case of dissolution of the trust, the AO may allow the application of income in the year in which it is dissolved by way of transfer of the accumulation to other trust registered u/s. 12 AA or institution referred to in Section 10(23C).

If there is violation of any of the conditions relating to accumulation of income, such income will be deemed to be income of the previous year in which the conditions are violated or the previous year immediately following the expiry of the period of accumulation.

 ◦ ◦ Income Not Received during the previous year Where due to reason that whole or any part of the income has not been received during the year, the amount can be applied in the year of receipt or in the following year. However, intimation in writing must be sent to AO before the expiry of time allowed u/s. 139(1) for furnishing the return.

In case the amount is not applied, it will be deemed to be the income of previous year immediately following year of receipt.

  The income from the properties held under trust have to be arrived at in the normal commercial manner without classification under the various heads set out in section 14 of the income tax act 1961.

The expression income has to be understood in the popular or general sense and not in the sense in which the income is arrived.

 the income should be applied at least 85% of the total receipt in that financial year.

◦ Capital expenditure on purchase of fixed assets as per the sc CIT vs Moolchand sharvati devi hospital trust that capital expenditure on building and infrastructure were basic necessary and therefore should be treated as expenditure under section 11(1).

◦ ◦ ◦ ◦ Payment of wealth tax and income tax also an application of fund as per CIT vs Ganga charity trust fund. Repayment of the any debt or has been considered as application as per vs.

Maharana of Mewar Charitable Foundation and circular no 100.

Advance for property with adequate documentation will be treated as application of fund as per DIT vs Maharaja agresen Technical Society.

Donation by one charitable trust to another trust from current income will be treated as application of fund.

    A. Section 13(1)(a) — Trust for private religious purposes.

B. Section 13(1)(b) — Trust established for the benefit of any particular religious community or caste.

C. Section 13(1)(c) — Income of the trust is applied directly or indirectly for the benefit of persons referred to in sub-section (3).

D. Section 13(1)(d) — Funds are invested otherwise than in any form or modes specified in 11(5).

        Interest free loan or loan without security Use of properties without charging adequate rent.

Excessive payment for services.

Services of trust without adequate remuneration.

Purchase of property for trust for excessive consideration.

Sale of trust property for inadequate consideration.

Diversion of income or property exceeding Rs 1000.

Investment in substantial interest concerns.

   According to section 11(1)(d) any voluntary contribution received by a trust created wholly for charitable or religious purpose with a specific direction that they shall form part of the corpus of the trust, shall not be included in the total income u/s 11. A charitable organization lose exemption by virtue of violation u/s 13 (1) then corpus income will also be included in the total income.

To claim a donation as a corpus donation, a written document with a specific direction from the donor should be obtain. The recipient organization has no right to treat a donation as a corpus donation.

     Donation by one charitable organization to another charitable organization from its current income is treated as a valid application of funds A corpus donation is not required to be spent in a same year it can be accumulated and form no. 10 is not required to be submitted in the Income Tax department.

Corpus Donation to an inter charity organization to be given during the year as a part of corpus donation received by the Trust.

As per circular no 108 dated 20.03.1973 by CBDT it cover u/s 12(1) which indicated that such corpus donation is not the part of income u/s 2(24).

The corpus donation to be kept in 11(5)

 ◦ ◦ ◦ ◦ ◦ ◦ following are the persons which are covered under this section.

The author of the trust or the founder of the institution.

Any person who has made a substantial contribution to the trust or institution that is to say any person whose total contribution at the end of the relevant previous year exceeds fifty thousand rupees.

Where such author founder or person is a Hindu undivided family a member of the family.

Any trustee of the trust or manager ( by whatever name called ) of the institution.

Any relative of any such author, founder , person, member, trustee or manager as aforesaid.

Any concern in which any of the persons referred to in all above clauses has a substantial interest.

 To ensure that only organization engaged in bona fide charitable or religious activities are allowed to claim exemption from tax, the law has prescribed a number of legal and procedural requirements. Taxpayers would be well-advised to go through the relevant provisions, particularly sections 11,12,12A, 1 115BBC and 139(4A) of income tax act and rules 17, 17A, 17B and 17C of income tax rules. section 11 are summarized as below:  The trust must be public charitable or public religious trust and not a private trust.

   Income claimed to be exempt must be derived from property held under trust.

If the trust or institution has taxable income for the year before clamming exemption under section 11 and 12, its accounts must be audited by a chartered accountant and audit report in the prescribed form must be filed with the return of income.

The trust must be registered by commissioner/director of income tax under section 12AA .

     Activities of the trust must be carried out in india.

 85% or more of the income for the year must be applied to ( i.e put to use) for charitable or religious purposes and the balance ( i.e 15 % or less ) ,must be accumulated or set apart for future application to charitable or religious purposes. OR If 85% of the income not applied to charitable or religious purposes during the year the same must be accumulated or set apart for future application for definite and specified purposes. For this purpose the Assessee must a give a notice in writing to assessing officer within the due date of filing of return of income be invest the money so accumulated or set apart only in specified modes. The maximum perod for which such income can be accumulated or set apart is 5 years.

If income of the trust or institution includes any income from business such business must be incidental to objectives of the trust and separate accounts must be maintained for such business.

If the trust or institution had taxable income during the year without giving effect to section 11 and 12 it must be file a return of income.

Capital gains if any during the year ( whether short or long term) must be reinvested in a new capital asset in order to be deemed to have been applied to charitable purposes.

   ◦ ◦ ◦ Application of earlier year registration granted.

No depreciation on Fixed Asset where we claim as application of Fund.

◦ Cancelation of registration in certain more cases.

Income does not endure for the benefit of general public.

For benefit of particular Region or Caste.

Income Applied for specified person.

Fund not Invested as per Section 11(5)